UPDATE: Here's what the moguls have to say:
This is a day of relief and optimism for everyone in the entertainment industry. We can now all get back to work, with the assurance that we have concluded two groundbreaking labor agreements - with our directors and our writers -- that establish a partnership through which our business can grow and prosper in the new digital age. The strike has been extraordinarily difficult for all of us, but the hardest hit of all have been the many thousands of businesses, workers and families that are economically dependent on our industry. We hope now to focus our collective efforts on what this industry does best - writers, directors, actors, production crews, and entertainment companies working together to deliver great content to our worldwide audiences.
Peter Chernin, Chairman and CEO, the Fox Group
Brad Grey, Chairman & CEO, Paramount Pictures Corp.
Robert A. Iger, President & CEO, The Walt Disney Company
Michael Lynton, Chairman & CEO, Sony Pictures Entertainment
Barry M. Meyer, Chairman & CEO, Warner Bros.
Leslie Moonves, President & CEO, CBS Corp.
Harry Sloan, Chairman & CEO, MGM
Jeff Zucker, President & CEO, NBC Universal
Wednesday, February 13, 2008
News Corp. Enters Yahoo Fray
By Jessica E. Vascellaro (WSJ Online)
News Corp. and Yahoo Inc. are in discussions about combining MySpace and other News Corp.-owned online properties with Yahoo, according to people familiar with the matter.
The discussions are aimed at helping Yahoo fend off Microsoft Corp's unsolicited takeover offer, which was initially valued at $44.6 billion. Under the deal being discussed, News Corp. would get a stake in Yahoo which could be more than 20%.
The deal under discussion, which would also include a contribution of cash ...
News Corp. and Yahoo Inc. are in discussions about combining MySpace and other News Corp.-owned online properties with Yahoo, according to people familiar with the matter.
The discussions are aimed at helping Yahoo fend off Microsoft Corp's unsolicited takeover offer, which was initially valued at $44.6 billion. Under the deal being discussed, News Corp. would get a stake in Yahoo which could be more than 20%.
The deal under discussion, which would also include a contribution of cash ...
U.S. Economy: Retail Sales Unexpectedly Rose 0.3% in January
By Shobhana Chandra
Feb. 13 (Bloomberg) -- Retail sales in the U.S. unexpectedly rose in January, easing concern that the world's largest economy has already slipped into a recession.
The 0.3 percent increase was led by spending on autos, clothes and gasoline, the Commerce Department said today in Washington. The figure followed a 0.4 percent decrease the previous month. Purchases excluding automobiles and gasoline were unchanged.
Excluding automobiles, purchases gained 0.3 percent after a 0.3 percent decline in December.
``Today's report will diminish recession anxieties, but it doesn't dispel them altogether,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland, who accurately forecast the sales gain.
Demand from consumers, whose spending accounts for about 70 percent of the economy, will probably wane in coming months, forcing the Federal Reserve to lower interest rates further, economists said. Macy's Inc., Target Corp. and Limited Brands Inc. said last week that sales at stores open more than a year declined in January. Macy's cut 2,300 jobs.
Treasury securities dropped after the report, with 10-year note yields rising to 3.70 percent at 10:22 a.m. in New York, from 3.66 percent late yesterday. The Standard & Poor's 500 Index added 0.6 percent to 1,356.24. At the same time, the S&P Retailing Index, which includes Home Depot Inc. and Best Buy Co., retreated 0.4 percent.
Retail sales were projected to fall 0.3 percent after an originally reported 0.4 percent drop the prior month, according to the median estimate in a Bloomberg News survey of economists.
Threats to Spending
The worst housing slump in a quarter century and shrinking access to credit threatens to hurt spending this quarter. The economy lost 17,000 jobs in January, the first drop in more than four years. The Standard & Poor's 500 Index has fallen three consecutive months, the longest losing streak since 2003, eroding households' investment portfolios.
Consumers are increasingly limiting expenses to those they can't avoid. The amount Americans must spend each month on debt service, housing, medical costs, and food and energy bills rose to 66.9 percent of their total spending in December, the highest since records began in 1980, according to Bloomberg figures.
``Food prices have been rising and gasoline prices have been rising and so we got a little boost to overall sales there,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York, who forecast retail sales would advance 0.2 percent. ``There's evidence here that the slump in the housing market is affecting spending.''
Excluding automobiles, purchases gained 0.3 percent after a 0.3 percent decline in December.
Car Dealers
Sales at automobile dealerships and parts stores rose 0.6 percent after a decline of 1.1 percent in December, the Commerce Department said.
That contrasts with industry figures that showed cars and light trucks sold last month at a 15.2 million annual pace, down 6.7 percent from December. Auto industry sales this year are forecast to drop to the lowest level since 1998.
Filling station sales rose 2 percent in January after remaining unchanged the prior month, today's report showed. Regular gasoline reached as high as $3.11 a gallon in early January, about 11 cents more than the average for the prior month, according to AAA. Excluding gas, retail sales rose 0.1 percent.
Sales also rose at clothing retailers, which posted a 1.4 percent increase, and grocery and beverage stores, which gained 0.6 percent. Purchases at non-store retailers, which include online and catalog sales, rose 0.5 percent.
Department Stores
Department-store sales dropped 1.1 percent. Stores selling building materials showed a 1.7 percent decrease in sales, after falling 2.5 percent. Sales also fell at electronics, appliance and sporting goods stores.
Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales rose 0.2 percent, after a 0.1 percent decrease the prior month. The government uses data from other sources to calculate the contribution from the three categories excluded.
Today's Commerce Department report also runs counter to industry figures that show January sales fell at stores from Target to Nordstrom Inc. even as some retailers slashed prices by as much as 75 percent. Sales at stores open at least a year rose 0.5 percent from a year earlier, the worst January since 1970, according to the International Council of Shopping Centers.
The industry figures account for about 17 percent of total retail sales, which make up almost half of consumer spending. Retailers' January results followed the worst holiday shopping season since 2002, according to ICSC.
A U.S. recession over the next 12 months is now an even bet, according to a Bloomberg survey of economists taken from Jan. 30 to Feb. 7. The odds of a recession rose from 40 percent in January.
Feb. 13 (Bloomberg) -- Retail sales in the U.S. unexpectedly rose in January, easing concern that the world's largest economy has already slipped into a recession.
The 0.3 percent increase was led by spending on autos, clothes and gasoline, the Commerce Department said today in Washington. The figure followed a 0.4 percent decrease the previous month. Purchases excluding automobiles and gasoline were unchanged.
Excluding automobiles, purchases gained 0.3 percent after a 0.3 percent decline in December.
``Today's report will diminish recession anxieties, but it doesn't dispel them altogether,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland, who accurately forecast the sales gain.
Demand from consumers, whose spending accounts for about 70 percent of the economy, will probably wane in coming months, forcing the Federal Reserve to lower interest rates further, economists said. Macy's Inc., Target Corp. and Limited Brands Inc. said last week that sales at stores open more than a year declined in January. Macy's cut 2,300 jobs.
Treasury securities dropped after the report, with 10-year note yields rising to 3.70 percent at 10:22 a.m. in New York, from 3.66 percent late yesterday. The Standard & Poor's 500 Index added 0.6 percent to 1,356.24. At the same time, the S&P Retailing Index, which includes Home Depot Inc. and Best Buy Co., retreated 0.4 percent.
Retail sales were projected to fall 0.3 percent after an originally reported 0.4 percent drop the prior month, according to the median estimate in a Bloomberg News survey of economists.
Threats to Spending
The worst housing slump in a quarter century and shrinking access to credit threatens to hurt spending this quarter. The economy lost 17,000 jobs in January, the first drop in more than four years. The Standard & Poor's 500 Index has fallen three consecutive months, the longest losing streak since 2003, eroding households' investment portfolios.
Consumers are increasingly limiting expenses to those they can't avoid. The amount Americans must spend each month on debt service, housing, medical costs, and food and energy bills rose to 66.9 percent of their total spending in December, the highest since records began in 1980, according to Bloomberg figures.
``Food prices have been rising and gasoline prices have been rising and so we got a little boost to overall sales there,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York, who forecast retail sales would advance 0.2 percent. ``There's evidence here that the slump in the housing market is affecting spending.''
Excluding automobiles, purchases gained 0.3 percent after a 0.3 percent decline in December.
Car Dealers
Sales at automobile dealerships and parts stores rose 0.6 percent after a decline of 1.1 percent in December, the Commerce Department said.
That contrasts with industry figures that showed cars and light trucks sold last month at a 15.2 million annual pace, down 6.7 percent from December. Auto industry sales this year are forecast to drop to the lowest level since 1998.
Filling station sales rose 2 percent in January after remaining unchanged the prior month, today's report showed. Regular gasoline reached as high as $3.11 a gallon in early January, about 11 cents more than the average for the prior month, according to AAA. Excluding gas, retail sales rose 0.1 percent.
Sales also rose at clothing retailers, which posted a 1.4 percent increase, and grocery and beverage stores, which gained 0.6 percent. Purchases at non-store retailers, which include online and catalog sales, rose 0.5 percent.
Department Stores
Department-store sales dropped 1.1 percent. Stores selling building materials showed a 1.7 percent decrease in sales, after falling 2.5 percent. Sales also fell at electronics, appliance and sporting goods stores.
Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales rose 0.2 percent, after a 0.1 percent decrease the prior month. The government uses data from other sources to calculate the contribution from the three categories excluded.
Today's Commerce Department report also runs counter to industry figures that show January sales fell at stores from Target to Nordstrom Inc. even as some retailers slashed prices by as much as 75 percent. Sales at stores open at least a year rose 0.5 percent from a year earlier, the worst January since 1970, according to the International Council of Shopping Centers.
The industry figures account for about 17 percent of total retail sales, which make up almost half of consumer spending. Retailers' January results followed the worst holiday shopping season since 2002, according to ICSC.
A U.S. recession over the next 12 months is now an even bet, according to a Bloomberg survey of economists taken from Jan. 30 to Feb. 7. The odds of a recession rose from 40 percent in January.
Monday, February 4, 2008
Google Rips Microsoft's Proposed Takeover of Yahoo, Saying It Would Stifle Internet Innovation
By Michael Liedtke, AP Business Writer
SAN FRANCISCO (AP) -- Google Inc. raised the specter of Microsoft Corp. using its proposed $42 billion acquisition of Yahoo Inc. to gain illegal control over the Internet, underscoring the online search leader's queasiness about its two biggest rivals teaming up.
The critical remarks, posted online Sunday by Google's top lawyer, represented the Mountain View-based company's first public reaction to Microsoft's unsolicited bid for Yahoo since the offer was announced Friday.
"Microsoft's hostile bid for Yahoo raises troubling questions," David Drummond, Google's chief legal officer, wrote. "This is about more than simply a financial transaction, one company taking over another. It's about preserving the underlying principles of the Internet: openness and innovation."
Google's opposition isn't a surprise, given that Microsoft views Yahoo as a crucial weapon in its battle to gain ground on Google in the Internet's booming search and advertising markets.
Redmond, Wash.-based Microsoft has been trying to depict a Yahoo takeover as a boon for both advertisers and consumers because the two companies together would be able to compete against Google more effectively.
But Google is painting a starkly different picture, asserting that Microsoft will be able to stifle innovation and leverage its dominating Windows operating system to set up personal computers so consumers are automatically steered to online services, such as e-mail and instant messaging, controlled by the world's largest software maker.
In a move that illustrates just how badly Google wants to torpedo the deal, Google Chief Executive Officer Eric Schmidt called Yahoo CEO Jerry Yang Friday to offer his help in repelling Microsoft, according to a report Sunday on The Wall Street Journal's Web site, which cited anonymous people familiar with the matter.
The assistance didn't include a counterbid, but may have included supporting other potential suitors, or a revenue guarantee in exchange for an ad partnership with Yahoo, the people said, according the newspaper.
AT&T Inc., Time Warner Inc. and News Corp. aren't planning to enter the bidding, the Journal said, citing the people familiar.
To help make its point, Google pointed to the way Microsoft previously used Windows to help extend the reach of its Web browser and other applications -- a strategy that triggered a U.S. Justice Department lawsuit alleging the software maker illegally used its operating system to stifle competition. The dispute ended with a 2002 settlement that required Microsoft to abandon some of its past practices.
"Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?" Drummond wrote.
Brad Smith, Microsoft's general counsel, said preventing Microsoft from buying Yahoo would undermine competition by allowing Google to become even more dominant than it already is on the Internet
"Microsoft is committed to openness, innovation, and the protection of privacy on the Internet," Smith said. "We believe that the combination of Microsoft and Yahoo! will advance these goals."
If they get together, Microsoft and Yahoo would have about 16 percent of the worldwide Internet search market -- still far behind Google's 62 percent share, according to comScore Media Metrix. But Microsoft and Yahoo already are far bigger in than Google in e-mail and instant messaging, and conceivably would be in a better position to squash rival services if they combined.
Illustrating the enormous stakes involved in a deal that could reshape the technology and media industries, Google and Microsoft are already debating the pros and cons before Yahoo has responded to the offer.
Yahoo so far has little to say except that its board will carefully examine Microsoft's bid -- a process that "can take quite a bit of time," according to a message posted on the Sunnyvale-based company's Web site.
The review "will include evaluating all of the company's strategic alternatives, including maintaining Yahoo as an independent company," Yahoo said on its Web site.
Most analysts believe Yahoo will have little choice but to sell to Microsoft, with its stock price near a four-year low at the time of the bid and its profits falling since late 2006. When it was first announced, Microsoft's offer was 62 percent above Yahoo's market value -- a premium analysts doubt any other suitor will be able to top.
If Yahoo accepts, antitrust regulators in both the United States and Europe are expected to begin an exhaustive review that some experts think could last a year. Microsoft believes it could get the necessary approvals to take over Yahoo late this year.
If nothing else, Google probably will try to raise enough alarms about the Microsoft-Yahoo deal to delay its approval for as long as possible. By doing so, Google would have more time to draw up plans to counteract the combination.
Google also is borrowing a page from Microsoft's book by urging antitrust regulators to take a hard look at the proposed marriage between its two rivals.
Just days after Google struck a $3.1 billion deal to buy online ad service DoubleClick Inc. last year, Microsoft began lobbying regulators to block the transaction. U.S. regulators blessed Google's DoubleClick acquisition late last year after an eight-month review, but the antitrust inquiry in Europe remains open.
Thursday, January 31, 2008
Ackman Devoured 140,000 Pages to Prove `MBIA Was Never AAA'
By Christine Richard and Katherine Burton of Bloomberg
Jan. 31 (Bloomberg) -- It was the $109,000 photocopying bill that hedge fund manager William Ackman says made him realize how much he'd read and underlined before betting against bond insurer MBIA Inc. in 2002.
His law firm charged him for copying 725,000 pages of financial statements and other documents, 140,000 of them about MBIA, to comply with a subpoena. Following New York and U.S. probes of his trading and reports, Ackman persisted in challenging MBIA's AAA credit rating for more than five years, based on his own research.
Ackman may soon be proved right. MBIA, the largest provider of insurance against defaults in the global credit market, today reported a fourth-quarter net loss of $2.3 billion because of a slump in the value of mortgage-related securities it guaranteed. The independent research firm CreditSights Inc. this week said MBIA's credit rating may be downgraded. Ackman had warned that MBIA was magnifying its risks by backing instruments such as those based on loans to the least creditworthy homebuyers.
``It's in the nature of a shareholder activist to be persistent,'' says Ackman, now 41. ``I've been persistent because it's an important issue. People are obsessive about stupid things. They are persistent about important things.''
In the MBIA documents, Ackman says he saw that the insurer was guaranteeing untested asset-backed securities. He also found a reinsurance transaction that allowed the company to downplay a loss. MBIA agreed in January 2007 to pay $75 million to settle U.S. regulators' inquiries into that deal.
$2,000 Bet on SAT
Ackman peppered rating companies and regulators with letters, e-mails and presentations criticizing MBIA's credit rating. He also got then-New York Attorney General Eliot Spitzer, who was investigating Ackman's activities, to probe MBIA.
Shares of MBIA, based in Armonk, New York, fell $2.02, or 13 percent, to $13.96 yesterday in New York Stock Exchange composite trading. The stock is down 81 percent from a 52-week high of $72.85 on Feb. 6, 2007.
In high school Ackman bet his father $2,000 that he would get a perfect score on the verbal portion of the SAT college- entrance exam. He says his dad called off the wager the morning of the test for fear he would lose the bet, though Ackman ended up scoring wrong on one answer.
Betting against MBIA and the No. 2 bond insurer, New York- based Ambac Financial Group Inc., helped Ackman's New York-based fund, Pershing Square Capital Management, to return 22 percent net to investors last year. He says he plans to give his personal gains on the bond insurers to Pershing Square's charitable foundation.
Speaking Publicly
``He has spoken out publicly about it, approached regulators, talked to the media,'' says David Einhorn, 39, head of New York-based Greenlight Capital LLC, who also has wagered against MBIA. ``He's not more right today than he was five years ago that MBIA was never AAA.''
Yesterday, in a letter to the Securities and Exchange Commission and to New York Insurance Superintendent Eric Dinallo, Ackman said MBIA and Ambac may each lose $11.6 billion on guarantees of mortgage-linked debt and other securities. He posted a list of the securities the two companies guaranteed on the Internet, along with a model supplied by an unnamed investment bank, so investors could do their own forecasts of what the insurers might lose.
In 2003, as the New York attorney general's probe was under way, Ackman fired off a memo to MBIA posing 146 questions he says the company never answered. The first was, ``Why did you have me investigated?''
`Emperor Has No Clothes'
``No one wanted to believe that a AAA-rated company was doing what it was doing,'' says Roger Siefert, a forensic accountant Ackman hired in 2003. ``We were treated like the little boy saying `the emperor has no clothes.'''
Chuck Chaplin, MBIA's chief financial officer, says in an interview that Ackman's criticism reflects misperceptions of the bond insurer's business. He disputes Ackman's estimates of MBIA's losses and says the trader is benefiting more from lucky timing than smart analysis.
``He was at the right place at the right time,'' Chaplin says. ``The past six months turned out to be a good time to be short business sectors with mortgage-market exposure, and as it turned out, the bond insurers ended up being one of them.''
Martin Whitman, the 83-year-old chairman of New York-based Third Avenue Management LLC, dismissed Ackman's criticism of MBIA in a December interview on CNBC.
``Mr. Ackman is a slick salesman who doesn't know much about insurance,'' Whitman said. Whitman's firm owned more than 10 percent of MBIA's stock, he said in the interview.
Advertising Commissions
Ackman earned undergraduate and business degrees from Harvard. His father, Lawrence Ackman, recalls that his son and another student worked one summer selling advertising for the ``Let's Go'' travel guides and earned unusually high commissions of $15,000 to $20,000.
``The next year they reduced the commission rates and ruined it for all future students,'' Lawrence Ackman says.
Straight out of business school, Ackman started his first hedge fund, Gotham Partners, with fellow student David Berkowitz. In the mid-1990s, Gotham tried to buy Rockefeller Center. During the talks, Ackman, then 28, says he got a call from Donald Trump.
Call From Trump
``He said to me, `Bill, Goldman Sachs is stealing Rockefeller Center and we've got to sit down and try to work something out,''' Ackman says. The two never agreed to work together.
In July 1996, a group led by Goldman Sachs and David Rockefeller, the philanthropist and former chief of Chase Manhattan Corp., took control of the center for $1.2 billion in cash and assumed debt. Gotham made a profit selling a stake in the property to Goldman, Ackman says. Trump didn't respond to a request for comment.
Ackman took an interest in MBIA after asking a credit- market trader which companies didn't deserve AAA ratings, he says. In a report entitled, ``Is MBIA Triple-A?'' he argued that the company had insufficient reserves to cover potential losses and was guaranteeing increasingly risky debts.
He disclosed taking a short position in MBIA, in which an investor sells borrowed stock, expecting to repurchase it later at a lower price and return the shares to the owner. Ackman also bought credit-default swaps, financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. The swaps would rise in value if doubts about MBIA grew.
Spitzer Investigation
Late in 2002, Ackman published his MBIA findings on Gotham's Web site. Ron MacDonald, the head of reinsurance at MBIA until 1999, read the report early in 2003 and e-mailed Ackman praising it, MacDonald says.
Ackman learned in January 2003 from a Wall Street Journal reporter that Spitzer was investigating whether Gotham had engaged in manipulative trading on MBIA and other companies and that the newspaper would publish an article the next day. The SEC later started its own probe.
``This is going to be a good thing,'' Ackman says he told friends that evening. ``I'm going to meet Eliot Spitzer.'' He says he saw it as an opportunity to turn the tables and present his concerns about MBIA.
Spitzer was investigating not only Ackman's position in MBIA, but also his trading in two other companies, Pre-Paid Legal Services and Federal Agricultural Mortgage Corp., or Farmer Mac. Spitzer, now the New York governor, didn't respond to a request for comment.
Turning the Tables
Ackman and Siefert, the forensic accountant, drew investigators' attention to the reinsurance deal that led to the $75 million settlement a year ago. The transaction covered MBIA for losses related to the 1998 bankruptcy of a Pennsylvania hospital group.
Meanwhile, Ackman made a series of presentations to Moody's Investors Service Inc., the New York-based credit rating company, challenging the bond insurer's top credit grade. In 2005, he wrote to Moody's warning that it was risking its own credibility by keeping MBIA at AAA.
``I apologize for putting you and Moody's on the spot,'' Ackman wrote. ``I have simply lost patience, and it is 2 in the morning.'' A Moody's spokesman said no one was available to comment.
Ackman says he recently received notification that the SEC had ended its investigation of him without any finding of wrongdoing. The letter arrived only after he wrote to the SEC chairman and the agency's four commissioners demanding it.
Jan. 31 (Bloomberg) -- It was the $109,000 photocopying bill that hedge fund manager William Ackman says made him realize how much he'd read and underlined before betting against bond insurer MBIA Inc. in 2002.
His law firm charged him for copying 725,000 pages of financial statements and other documents, 140,000 of them about MBIA, to comply with a subpoena. Following New York and U.S. probes of his trading and reports, Ackman persisted in challenging MBIA's AAA credit rating for more than five years, based on his own research.
Ackman may soon be proved right. MBIA, the largest provider of insurance against defaults in the global credit market, today reported a fourth-quarter net loss of $2.3 billion because of a slump in the value of mortgage-related securities it guaranteed. The independent research firm CreditSights Inc. this week said MBIA's credit rating may be downgraded. Ackman had warned that MBIA was magnifying its risks by backing instruments such as those based on loans to the least creditworthy homebuyers.
``It's in the nature of a shareholder activist to be persistent,'' says Ackman, now 41. ``I've been persistent because it's an important issue. People are obsessive about stupid things. They are persistent about important things.''
In the MBIA documents, Ackman says he saw that the insurer was guaranteeing untested asset-backed securities. He also found a reinsurance transaction that allowed the company to downplay a loss. MBIA agreed in January 2007 to pay $75 million to settle U.S. regulators' inquiries into that deal.
$2,000 Bet on SAT
Ackman peppered rating companies and regulators with letters, e-mails and presentations criticizing MBIA's credit rating. He also got then-New York Attorney General Eliot Spitzer, who was investigating Ackman's activities, to probe MBIA.
Shares of MBIA, based in Armonk, New York, fell $2.02, or 13 percent, to $13.96 yesterday in New York Stock Exchange composite trading. The stock is down 81 percent from a 52-week high of $72.85 on Feb. 6, 2007.
In high school Ackman bet his father $2,000 that he would get a perfect score on the verbal portion of the SAT college- entrance exam. He says his dad called off the wager the morning of the test for fear he would lose the bet, though Ackman ended up scoring wrong on one answer.
Betting against MBIA and the No. 2 bond insurer, New York- based Ambac Financial Group Inc., helped Ackman's New York-based fund, Pershing Square Capital Management, to return 22 percent net to investors last year. He says he plans to give his personal gains on the bond insurers to Pershing Square's charitable foundation.
Speaking Publicly
``He has spoken out publicly about it, approached regulators, talked to the media,'' says David Einhorn, 39, head of New York-based Greenlight Capital LLC, who also has wagered against MBIA. ``He's not more right today than he was five years ago that MBIA was never AAA.''
Yesterday, in a letter to the Securities and Exchange Commission and to New York Insurance Superintendent Eric Dinallo, Ackman said MBIA and Ambac may each lose $11.6 billion on guarantees of mortgage-linked debt and other securities. He posted a list of the securities the two companies guaranteed on the Internet, along with a model supplied by an unnamed investment bank, so investors could do their own forecasts of what the insurers might lose.
In 2003, as the New York attorney general's probe was under way, Ackman fired off a memo to MBIA posing 146 questions he says the company never answered. The first was, ``Why did you have me investigated?''
`Emperor Has No Clothes'
``No one wanted to believe that a AAA-rated company was doing what it was doing,'' says Roger Siefert, a forensic accountant Ackman hired in 2003. ``We were treated like the little boy saying `the emperor has no clothes.'''
Chuck Chaplin, MBIA's chief financial officer, says in an interview that Ackman's criticism reflects misperceptions of the bond insurer's business. He disputes Ackman's estimates of MBIA's losses and says the trader is benefiting more from lucky timing than smart analysis.
``He was at the right place at the right time,'' Chaplin says. ``The past six months turned out to be a good time to be short business sectors with mortgage-market exposure, and as it turned out, the bond insurers ended up being one of them.''
Martin Whitman, the 83-year-old chairman of New York-based Third Avenue Management LLC, dismissed Ackman's criticism of MBIA in a December interview on CNBC.
``Mr. Ackman is a slick salesman who doesn't know much about insurance,'' Whitman said. Whitman's firm owned more than 10 percent of MBIA's stock, he said in the interview.
Advertising Commissions
Ackman earned undergraduate and business degrees from Harvard. His father, Lawrence Ackman, recalls that his son and another student worked one summer selling advertising for the ``Let's Go'' travel guides and earned unusually high commissions of $15,000 to $20,000.
``The next year they reduced the commission rates and ruined it for all future students,'' Lawrence Ackman says.
Straight out of business school, Ackman started his first hedge fund, Gotham Partners, with fellow student David Berkowitz. In the mid-1990s, Gotham tried to buy Rockefeller Center. During the talks, Ackman, then 28, says he got a call from Donald Trump.
Call From Trump
``He said to me, `Bill, Goldman Sachs is stealing Rockefeller Center and we've got to sit down and try to work something out,''' Ackman says. The two never agreed to work together.
In July 1996, a group led by Goldman Sachs and David Rockefeller, the philanthropist and former chief of Chase Manhattan Corp., took control of the center for $1.2 billion in cash and assumed debt. Gotham made a profit selling a stake in the property to Goldman, Ackman says. Trump didn't respond to a request for comment.
Ackman took an interest in MBIA after asking a credit- market trader which companies didn't deserve AAA ratings, he says. In a report entitled, ``Is MBIA Triple-A?'' he argued that the company had insufficient reserves to cover potential losses and was guaranteeing increasingly risky debts.
He disclosed taking a short position in MBIA, in which an investor sells borrowed stock, expecting to repurchase it later at a lower price and return the shares to the owner. Ackman also bought credit-default swaps, financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. The swaps would rise in value if doubts about MBIA grew.
Spitzer Investigation
Late in 2002, Ackman published his MBIA findings on Gotham's Web site. Ron MacDonald, the head of reinsurance at MBIA until 1999, read the report early in 2003 and e-mailed Ackman praising it, MacDonald says.
Ackman learned in January 2003 from a Wall Street Journal reporter that Spitzer was investigating whether Gotham had engaged in manipulative trading on MBIA and other companies and that the newspaper would publish an article the next day. The SEC later started its own probe.
``This is going to be a good thing,'' Ackman says he told friends that evening. ``I'm going to meet Eliot Spitzer.'' He says he saw it as an opportunity to turn the tables and present his concerns about MBIA.
Spitzer was investigating not only Ackman's position in MBIA, but also his trading in two other companies, Pre-Paid Legal Services and Federal Agricultural Mortgage Corp., or Farmer Mac. Spitzer, now the New York governor, didn't respond to a request for comment.
Turning the Tables
Ackman and Siefert, the forensic accountant, drew investigators' attention to the reinsurance deal that led to the $75 million settlement a year ago. The transaction covered MBIA for losses related to the 1998 bankruptcy of a Pennsylvania hospital group.
Meanwhile, Ackman made a series of presentations to Moody's Investors Service Inc., the New York-based credit rating company, challenging the bond insurer's top credit grade. In 2005, he wrote to Moody's warning that it was risking its own credibility by keeping MBIA at AAA.
``I apologize for putting you and Moody's on the spot,'' Ackman wrote. ``I have simply lost patience, and it is 2 in the morning.'' A Moody's spokesman said no one was available to comment.
Ackman says he recently received notification that the SEC had ended its investigation of him without any finding of wrongdoing. The letter arrived only after he wrote to the SEC chairman and the agency's four commissioners demanding it.
Monday, January 28, 2008
McDonald's Slides on Consumer Cutbacks
Ruthie Ackerman (Forbes)
McDonald’s fourth-quarter profit jumped on strong international sales, but flat domestic same-store sales in December sent the company’s shares sliding as investors worried that the downturn in the economy could impact the world’s No. 1 hamburger chain. The Oak Brook Ill.-based company’s shares slid 6.4%, or $3.48, to $50.62 in afternoon trading, but the decline held the Dow Jones industrial average back from even stronger gains. On Monday, McDonald's reported that its net income rose to $1.3 billion, or $1.06 per share, up from $1.2 billion, or $1 per share, in the prior year. Excluding income tax benefits of 33 cents per share, the company still earned 73 cents per share, beating analysts’ estimates of 71 cents per share. Sales rose 6% to $5.8 billion from $5.5 billion in the fourth quarter of 2006. Analysts polled by Thomson Financial predicted sales of $5.6 billion.
UBS analyst David Palmer said Europe's profit growth was the main driver in the quarter, but flat same-store sales in the U.S. were worse than expected. The company blamed its flat domestic same-store sales for December on winter weather and weaker consumer spending, but says it remains confident in its U.S. business. While its United States business posted same-store sales growth of 3.3% for the fourth quarter, global same-store sales soared 6.7% led by a 11.4% comparable sales increase in the Asia/Pacific, Middle East and Africa segment. Palmer said that McDonald's sales slowed substantially more than the industry in December, indicating that it benefited from Taco Bell's e-coli scare in December 2006. McDonald’s said it will begin paying its dividend on a quarterly basis in 2008. The next payout will be for 37.5 cents per share on March 17 for the first quarter to shareholders of record on March 3. The board will review the dividend rate on an annual basis each fall. Palmer maintained his "buy" rating and his $67 price target.
McDonald’s fourth-quarter profit jumped on strong international sales, but flat domestic same-store sales in December sent the company’s shares sliding as investors worried that the downturn in the economy could impact the world’s No. 1 hamburger chain. The Oak Brook Ill.-based company’s shares slid 6.4%, or $3.48, to $50.62 in afternoon trading, but the decline held the Dow Jones industrial average back from even stronger gains. On Monday, McDonald's reported that its net income rose to $1.3 billion, or $1.06 per share, up from $1.2 billion, or $1 per share, in the prior year. Excluding income tax benefits of 33 cents per share, the company still earned 73 cents per share, beating analysts’ estimates of 71 cents per share. Sales rose 6% to $5.8 billion from $5.5 billion in the fourth quarter of 2006. Analysts polled by Thomson Financial predicted sales of $5.6 billion.
UBS analyst David Palmer said Europe's profit growth was the main driver in the quarter, but flat same-store sales in the U.S. were worse than expected. The company blamed its flat domestic same-store sales for December on winter weather and weaker consumer spending, but says it remains confident in its U.S. business. While its United States business posted same-store sales growth of 3.3% for the fourth quarter, global same-store sales soared 6.7% led by a 11.4% comparable sales increase in the Asia/Pacific, Middle East and Africa segment. Palmer said that McDonald's sales slowed substantially more than the industry in December, indicating that it benefited from Taco Bell's e-coli scare in December 2006. McDonald’s said it will begin paying its dividend on a quarterly basis in 2008. The next payout will be for 37.5 cents per share on March 17 for the first quarter to shareholders of record on March 3. The board will review the dividend rate on an annual basis each fall. Palmer maintained his "buy" rating and his $67 price target.
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